How choice is upping the cost of private health insurance

31 August 2018 - 3:37pm

From April 1st 2018, premiums for private health insurance increased by an average of 3.95 per cent in a trend that's becoming familiar to Australians who keep up with the news. There are a number of factors which have contributed to rising premium prices, not least the growing costs of healthcare and the fact that greater numbers of people are claiming on their policies, according to data from Private Healthcare Australia (PHA).

However, recently another reason for premium hikes has come to light, confusion over policy choice.

Consumer confusion is one of the problems facing Australia's private health system.

The problem

A recent report in the Herald Sun raised the issue of how insurance products that exclude cover for certain health treatments, in particular childbirth, are confusing customers. Unsurprisingly, people expect to pay less for products which appear to offer more limited cover. However, because these exclusionary policies often attract an older customer base (those past child-bearing age) the premiums actually end up costing more, as this demographic is more likely to require medical treatment.

In a report submitted to the Senate by Russell Schneider, former CEO of the health insurers' lobby group, the increased premiums resulting from these selective policies are predicted to increase the cost of cover by up to $700 for singles, and $1,400 for families.

What does this mean?

Consumer confusion is not a new phenomenon when it comes to private health insurance. Indeed almost half of Australian policyholders find comparing the benefits of separate policies difficult, according to data from consumer group CHOICE. This is why free assessment services, such as that offered by HICA, are so important in helping customers find a policy that best suits them.

With the unintended consequences of exclusionary policies now contributing to such significant increases to the costs of premiums, it's clear that something need to change.

The government is aiming to clarify health products offered to the public.

What's being done?

The government is attempting to clarify the situation through its new reform package. This will establish four categories of cover: basic, bronze, silver and gold. While this at least offers a bottom line on what is and what isn't included in individual products, there's still room for confusion. Product manufacturers are likely to blur the lines between the categories in order to stand out from competitors, and increase their market share. This could, for example, take the form of Bronze Plus or Silver Plus products which feature the benefits of higher level products.

The importance of choice

Another potential solution, presented by Mr. Schneider, is to allow insurers to sell one product that incorporates all medical treatments presently covered by top hospital policies. This radical suggestion, whilst holding some validity, would limit consumer choice and risks concentrating the market share to the handful of funds with the largest marketing budgets.

With the unintended consequences of these policies leading to such increases in premium costs, it's clear that something need to change.

We should also remember that cheaper products which exclude certain treatments aren't without merit, and their removal under Schneider's suggestion would inconvenience certain groups. Basic products are important in attracting younger Australians, a demographic traditionally under-represented in private healthcare, to take the important step of getting covered. Similarly, those living in rural parts often seek basic coverage, as they're unlikely to have convenient access to private hospitals.

Whilst Schneider's suggestion may not be the best way forward, it makes the important contribution of highlighting how the market risks moving away from the concept of community rating.This is a central element of the Australian private health insurance system which states that all consumers pay the same premium for health insurance, and stops funds from offering different rates based on health, age, or history of claims.

The community rating system aims to make private health insurance fair for all.

If you're one of the many Australians confused by the current private health system, HICA is here to help you. With over 30 years experience, we get rid of the confusion by offering a consulting service that allows you to easily compare products and pick one that is right for you. For more information, get in touch with HICA today.